13-01-2004 22:21									#1
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http://www.nytimes.com/2004/01/13/t...13china.html?hp

quote: China Poses Trade Worry as It Gains in Technology By STEVE LOHR Published: January 13, 2004 o high-technology companies, China has been a land of seemingly pure promise in recent years. Not only is it a fast-growing consumer market, but it has also become a low-cost workshop for assembling technology products for American, European and Japanese concerns. But as China moves to expand its own technology industries, the government has taken unusual steps that are leading to new trade tensions with the United States, according to Silicon Valley executives, trade experts and United States officials. These measures include efforts to develop Chinese software standards for wireless computers, the introduction of exclusive technology formats for future generations of cellphones and DVD players - even tax policies that favor computer chips made in China and sold in the Chinese market. "The issue here is what path will China take as it develops its technology industries," said Bruce P. Mehlman, a former technology policy official in the Bush administration who is the executive director of the Computer Systems Policy Project, an industry group. "Will it take a more global, market-based approach, or will it try to change the rules and disadvantage others?" Concerns over China's strategies intensified last month when it announced that foreign computer and chip makers that want to sell certain kinds of wireless devices in the country would have to use Chinese encryption software and co-produce their goods with a designated list of Chinese companies. Foreign computer makers, led by American companies, have protested the decision. In addition to their concern about the separate standard, foreign companies are worried about the possible loss of intellectual property if they are forced to work with Chinese companies that have the potential to become competitors. The quarrel over technical standards compounds the friction over a longer-standing dispute on tax policies. The semiconductor industry is protesting a Chinese tax that is as much as 14 percent higher on imported computer chips than on those designed or manufactured in China, whether by domestic or foreign companies. The higher tax rate applies to chips used in products sold into the Chinese market but not to exported products. The American chip industry contends that the tax is discriminatory and will force companies to do more advanced manufacturing and design work in China, skewing investment and trade patterns. It also argues that the differential tax on imports violates World Trade Organization rules that a nation's tax policies must not discriminate against imports. The industry is pressing the Bush administration to file a complaint with the W.T.O. by March unless China modifies its policy. "This tax is one of the measures that is underpinning China's semiconductor strategy, but we think it violates the W.T.O. rules," said George M. Scalise, president of the Semiconductor Industry Association. Chinese officials insist that they are firmly and irrevocably committed to developing an outward-looking market economy, particularly since China joined the W.T.O. in November 2001. "We want to introduce foreign competition to help release the potential of our people and our economy," said Tian Jun, counselor for economic affairs at the Chinese Embassy in Washington. "It's a pretty open market in China." Mr. Tian said that American concerns on technology issues were mostly misunderstandings, matters that could be resolved with further discussions - or actions China had every right to take as a sovereign nation. "Chinese companies are working on their own technology and their own standards,'' he said, "but we are targeting the world market." Some Chinese practices may not conform yet to world trading rules, he added, but those will eventually fall away as China moves toward openness. "We don't focus on short-term trade quarrels," Mr. Tian said. So far, China has shown little interest in addressing the grievances of American technology companies, according to industry executives and government officials. It responded to complaints about the wireless encryption standard by giving companies until June to comply, and has offered no indication that it plans to back off on enforcing its own standard. The impact is likely to be greatest on devices that permit short-range wireless, or Wi-Fi, connections to the Internet, which have become popular for use in homes, offices and coffee shops. The need for improved security for such data communications is widely recognized, and a group from the Institute of Electrical and Electronics Engineers is working on it. "Having a different standard from the rest of the world fractures the market," said Ann Rollins, director of technology and trade policy at the Information Technology Industry Council, whose members include Dell, Hewlett-Packard, I.B.M., Intel, Microsoft and others. "The implications of this are dangerous going forward." The wireless encryption step, according to industry executives and government officials, is part of a broader trend of China going its own way in developing technology standards. It is a movement that promises to increase trade tensions beyond Bush administration complaints about China's surging trade surplus and its tactic of keeping its currency fixed against the dollar, giving it a competitive advantage in selling to the United States. "Standards have become the new battleground, unfortunately," said Phillip J. Bond, under secretary of commerce for technology policy. How the issues of standards will play out is uncertain. The wireless encryption standard, if unchanged and mandatory, could prompt a trade challenge from Washington. "That is both a trade concern and standards issue," Mr. Bond said. "This looks much more like a government regulation than a standard." Encryption codes for communications have often been regarded as a matter of national security and thus rightfully determined by governments. Over the years, the United States has also tried to control computer cryptography standards. But the American critics of China's wireless encryption standard contend that Wi-Fi communications, which typically extend no more than a few hundred feet, are a purely commercial use and not a national security concern. Given its huge consumer market and an economy in rapid ascent, trade experts say, China will increasingly have the power to influence standards in technology, just as Britain set standards in the 19th century and the United States in the 20th century. Today, the principal international standard-setting organizations have representation from many countries, including China, but American interests often carry the greatest influence. "We are accustomed to the United States being the biggest market and the technology leader, so the standards have largely been American standards," said Clyde V. Prestowitz, president of the Economic Strategy Institute in Washington and a former trade negotiator. "But China is going to be the biggest in the world for a lot of things. If the Chinese have the biggest market for cellphones, DVD players, computers and other things, they will have a lot of power to set technology standards." China's effort to develop its own technical standards for the next generation of DVD's appears to be an effort to avoid hefty royalty payments to patent-holding corporations in Japan, the United States and Europe. About half of the world's DVD players are now made in China. The new discs will hold four to five times the digital video and audio data of those currently on the market. The next-generation discs and their players will not be widely available until at least 2005, but the world's largest electronics, computer and entertainment companies are already battling over whose technology will become part of an industry standard. The Chinese standard, called EVD, appears to be "more an escape hatch around the patent pools of the established companies than a technology breakthrough," said Richard Doherty, president of the Envisioneering Group, a technology consulting firm. Yet the Chinese standard is less than completely indigenous. For example, the video compression software for the standard comes from On2 Technologies, a company based in New York. After more than a year of negotiations, it won out over software offerings from larger rivals like Microsoft, Douglas A. McIntyre, On2's president, said. Indeed, a significant restraint on China's freedom to set standards is that it is not yet a wellspring of technological innovation. To become a leader in innovation, analysts say, China needs to work closely with and learn from the leading American companies - and that would suggest cooperation on standards as well. The Chinese have, in fact, adopted roughly 8,000 international product standards, but they have also created 20,000 national product standards. "China has national standards that are basically what we would say are regulations," said Oliver R. Smoot, president of the International Organization for Standardization, a federation of national standards bodies based in Geneva. "It's totally different from the U.S. approach, which is for producers to write a document and call it a standard. Then, people are free to adopt it or not." The question, Mr. Smoot said, is how China will proceed as it becomes an increasingly prominent player in the global economy. "What most people would like,'' Mr. Smoot said, "is for China to join in and we all roll forward together."

For the standards, I don't mind so much. It will increase competition and hopefully lead to better products overall. But China's tactics on import taxes are unfair. No different than Bush's steel taxes, which he eventually had to repeal. It will be interesting to see if the world community protests this, or were the steel taxes just about attacking America?

	13-01-2004 22:28									#2
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Well, since China is in the WTO now, the BUsh amdin. can take the same steps others had to take to force Bush to cut the steel tariffs- take the Chinese to court.

	13-01-2004 22:31									#3
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Why they ever let China in the WTO is beyond me.

	13-01-2004 22:33									#4
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Well, I thought it would be a good thing. :shrug:

	13-01-2004 23:05									#5
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Different standards will not increase competition. All it does is require manufactures to produce a different product to sell to China than the rest of the world, and they will have to pay royalties to do this outside China. So it is good for Chinese companies because they can produce inferior products that compete with foriegn standards, as their prices will be high.

It is like forcing everyone to invent the wheel over and over again.

I honestly think a world standard would be great for technology progression and competition. Basically the only way to get an edge is to out price or out build everyone else. But if American products just don't work in China, or visa versa, competition will not increase.

	13-01-2004 23:15									#6
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Even if China is not a team player, the trade books have to be balanced over time. They have to buy as much of our useless stuff as we buy of their useless stuff. Because of this, I question whether such actions are in China's interest. China will eventually have to buy what we sell. And since we sell high tech goods, China will eventually have to buy our high tech goods.

	14-01-2004 00:00									#7
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"They have to buy as much of our useless stuff as we buy of their useless stuff"

I question this economic idea in the context of a society where private property is not a right and the government has the right to confiscate, destroy, or re-value any assets of any individual at any time. People buying too many foreign products? Sumptuary laws! Dump money in the sea! Whatever it takes.

	14-01-2004 00:06									#8
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Well, I'm assuming that China isn't going to dump in the sea the US dollars it gains by selling the US its useless stuff, and will instead get rid of it some other way (e.g., buying our useless stuff directly or giving it to somebody else, who will buy our useless stuff). Is this a bad assumption?

	14-01-2004 00:17									#9
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Maybe not literally dump into the sea, but they could do other things besides letting private citizens spend it on widgets.

For example, hire their cheap interior labour to construct massive public works via taxation (get those dangerous US dollars out of private hands and into concrete and steel instead of Playstations...).

'Dump into the sea' is just an example of the brute force methods a communist society is prepared to use to face a 'collective problem'.

	14-01-2004 00:59									#10
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Wasn't Europe on a different standard for say, computers for a long time. How costly is it to actually run seperate production lines for different regions when the differance is not just software.

The way I understand it Chinese/American products like cell phones simply won't work in other markets because their encryption/communication components are physically different. And doesn't it hurt when you can't sell a glut of product from an nonperforming market in another?

I don't know, I am honestly asking.

	14-01-2004 01:59									#11
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Why should the chinese eventually buy our stuff? There are plenty of states that buy American bu they have nothing to sell us so we don;t buy squat form them.

The Chinese are buying our government debt in the form of bonds and so forth. And since the American consumer is 2 trillion dollars in debt (excluding mortages, and other fixed loans, which equal 7 trillion), I guess another trillion of chinese goods bought on credit won't hurt....

	14-01-2004 02:07									#12
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quote: The Chinese are buying our government debt in the form of bonds and so forth.

Well, that's useless stuff, no? Only offers 4%.

	14-01-2004 02:34									#13
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quote: Originally posted by DanS Well, that's useless stuff, no? Only offers 4%.

Well, 4% of a huge number is still good money, and the longer bush in is office, the bigger the number. Besides, as I said, given our acceptance of credit, the American consomer can more than absord Chinese goods without the Chinese eventually buying diddly form us.

	14-01-2004 02:36									#14
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if it's ok for the us to be a total ****ing *******, then it's ok for china to be one too.

i say we nuke 'em all.

	14-01-2004 02:46									#15
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quote: Well, 4% of a huge number is still good money, and the longer bush in is office, the bigger the number.

4% sucks. Not sure what you mean with your Bush comment.

quote: Besides, as I said, given our acceptance of credit, the American consomer can more than absord Chinese goods without the Chinese eventually buying diddly form us.

What makes you think that China would be equally accepting of this credit forever?

	14-01-2004 03:06									#16
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quote: Originally posted by DanS What makes you think that China would be equally accepting of this credit forever?

Why wouldn't they? The US consumer might go into 5 trillion in debt-they still get their money- it is consumers in the uS and thier creditors who get into trouble.

The basic thing is,. what does the US make the China must buy only form the uS? That they have no chance of making on their own, or that others do not make already? Consumer electronics? Sorry, but they make plenty of those themselves (as the article notes) and the rest are generally made in Asia as well. Cars? yup, bu there we compete with the Japanese and Europeans..heavy machinery? The US competes with the Euros- shipbuilding? We have to compete with Euros, Japan and SK..aircraft? Perhaps, but we do have competition..weapons: most certainly, but we won't sell to them.

	14-01-2004 03:40									#17
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quote: Why wouldn't they? The US consumer might go into 5 trillion in debt-they still get their money- it is consumers in the uS and thier creditors who get into trouble.

You're forgetting that the value of the dollar relative to other currencies (besides China's) isn't fixed. As the US continues to run up that debt, the relative value of the dollar will decline.

quote: The basic thing is,. what does the US make the China must buy only form the uS? That they have no chance of making on their own, or that others do not make already? Consumer electronics? Sorry, but they make plenty of those themselves (as the article notes) and the rest are generally made in Asia as well. Cars? yup, bu there we compete with the Japanese and Europeans..heavy machinery? The US competes with the Euros- shipbuilding? We have to compete with Euros, Japan and SK..aircraft? Perhaps, but we do have competition..weapons: most certainly, but we won't sell to them.

As the relative value of the dollar declines against the currencies of these other countries, China will get a better deal from the US for these products versus other countries. This is non-trivial. Buying a product from the US is now about 30% cheaper on a relative basis to the Euro countries than it was a couple of years ago.

	14-01-2004 03:46									#18
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quote: Originally posted by DanS You're forgetting that the value of the dollar relative to other currencies (besides China's) isn't fixed. As the US continues to run up that debt, the relative value of the dollar will decline.

Hence the chinese keep thier currency fixed..see how that works!

quote: As the relative value of the dollar declines against the currencies of these other countries, China will get a better deal from the US for these products versus other countries. This is non-trivial. Buying a product from the US is now about 30% cheaper on a relative basis to the Euro countries than it was a couple of years ago.

True..though the article basically shows the chinese are doing what they can to establish local industries so they don;t have to buy foreign.

	14-01-2004 04:12									#19
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quote: Originally posted by Patroklos Wasn't Europe on a different standard for say, computers for a long time. How costly is it to actually run seperate production lines for different regions when the differance is not just software. The way I understand it Chinese/American products like cell phones simply won't work in other markets because their encryption/communication components are physically different. And doesn't it hurt when you can't sell a glut of product from an nonperforming market in another? I don't know, I am honestly asking.

I know they were for computers... I remember buying games that said they would not work on European computers, and that was the early 90s.

	14-01-2004 05:45									#20
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quote: Originally posted by DanS Well, I'm assuming that China isn't going to dump in the sea the US dollars it gains by selling the US its useless stuff, and will instead get rid of it some other way (e.g., buying our useless stuff directly or giving it to somebody else, who will buy our useless stuff). Is this a bad assumption?

they hold about 357? billion in debt.

	14-01-2004 06:37									#21
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I think all of this is grounded in China's effort to avoid paying patent royalties for products sold in their country. This is typical of a country that has a large market but is behind in technology.

	14-01-2004 08:15									#22
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quote: Originally posted by DanS Well, I'm assuming that China isn't going to dump in the sea the US dollars it gains by selling the US its useless stuff, and will instead get rid of it some other way (e.g., buying our useless stuff directly or giving it to somebody else, who will buy our useless stuff). Is this a bad assumption?

Yes, it is a bad assumption. China uses it's exports to keep it's economy going. As long as they need to export they will continue to be willing to accumulate US dollars.

	14-01-2004 10:03									#23
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Damn Chinese, they're not team players, they're not playing by OUR rules.

	14-01-2004 10:06									#24
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Well, to be fair, they joined the WTO well after everyone else.

You join a game late, you play by their rules. Otherwise it's cheating.

	14-01-2004 10:45									#25
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quote: Originally posted by Patroklos Different standards will not increase competition. All it does is require manufactures to produce a different product to sell to China than the rest of the world, and they will have to pay royalties to do this outside China.

How is this different from any products that has two competiting formats?

quote: Originally posted by Patroklos So it is good for Chinese companies because they can produce inferior products that compete with foriegn standards, as their prices will be high.

This is a silly blanket statement.

quote: Originally posted by Patroklos I honestly think a world standard would be great for technology progression and competition. Basically the only way to get an edge is to out price or out build everyone else.

Regardless how good or bad that standard is? Take VHS vs Betamax for example. VHS eventually won out though it is inferior to Betamax.

	14-01-2004 10:46									#26
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quote: Originally posted by Ned I think all of this is grounded in China's effort to avoid paying patent royalties for products sold in their country. This is typical of a country that has a large market but is behind in technology.

What are you talking about? If a country is behind in technology, it will not be able to create standards in a number of areas.

	14-01-2004 12:08									#27
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Has it been a year already in the WTO? Well, nice move anyway

http://news.bbc.co.uk/1/hi/world/as...fic/3394913.stm

	14-01-2004 12:41									#28
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I think it's like 3 years.

	14-01-2004 14:13									#29
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quote: Originally posted by Urban Ranger Regardless how good or bad that standard is? Take VHS vs Betamax for example. VHS eventually won out though it is inferior to Betamax.

VHS was superior in price and in marketing and quickly in market saturation as well, and that was enough for a new product that few consumers understood at the time.

	14-01-2004 20:54									#30
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Well, if China is the leading world market for some product, and China happens to be the world's leading manufacturer of that product, why shouldn't the Chinese set whatever standard they want? Nothing the west hasn't been doing for a long time. In business and politics, Chinese play hardball. If there is a great advantage to setting their own standard, you can bet they will try to do so.

Having said that, I think the west faces no great peril. Imagination, originality, and creativity are just not strong points of the Chinese mentality. They are excellent assimilaters and adapters, but they are poor innovators. This applies to just about any field you can name, not just technological standard creation.

Why is this? My latest thinking is that it is attributable to two main causes: (1) a cultural aversion to risk taking (especially notable in Shanghainese), but more importantly, (2) a rote memorization-based education system that actively punishes orginal thought.